The gold in mining: B.C. sector thriving, thanks in large part to China

A geologist looks for possible mineral deposits in British Columbia.

Photograph by: Wayne Jackaman
, Vancouver Sun

The head office is just one among 800-odd mining companies clustered in downtown Vancouver.

But even in a group so large it serves as the backbone of the city’s business district — and the world’s centre of mining expertise — Teck Resources stands out.

Teck is among the world’s top 20 mining companies, with 13 operations from northwest Alaska to Newfoundland to central Chile, and projects in Europe, Asia and Africa. President and chief executive officer Don Lindsay need only look out a northeast-facing window at Teck’s 33rd-floor office to remind himself of that.

Across Burrard Inlet, at North Vancouver’s Neptune Terminals, vast tonnes of black steelmaking coal gathered from Teck’s mines in southeast British Columbia and Alberta await shipment to hungry markets in Asia.

Measured by tonnage, coal is B.C.’s largest export and Teck accounts for most of it, shipped primarily from the Roberts Bank coal port in Delta but increasingly from Neptune, as Teck increases exports to keep pace with growing international demand.

Lindsay is bullish on coal and on Teck’s other big commodity, copper, and on China’s appetite for more of both.

He’s a card-carrying believer in China’s economic growth. Literally. He carries a laminated, card-sized summary of China’s five-year economic plan to illustrate Teck’s conviction that all of its growth plans are based on a solid premise.

Teck’s recent investments include $480 million to modernize its flagship Highland Valley copper mine near Kamloops, $210 million for its Trail lead and zinc smelter and $440 million for mine-life extensions at Carmen de Andacollo mine in Chile.

In B.C., the company plans to hire 1,500 people in the next three years and spend $1 billion.

“You’re putting the money into Chile, or B.C., but you’re really investing in China,” Lindsay said. “You wouldn’t make that investment unless you had confidence that the Chinese are going to consume the copper, the coal, whatever it might be.”

B.C. accounts for one third of Canada’s annual copper production and, since Canada is one of the world’s top 10 copper producers, that makes B.C. a world player in the market for this multi-purpose metal.

China consumes 40 per cent of the world’s copper, up from about nine per cent in 2002. Over the same time period, the United States’ copper consumption has fallen to about six per cent, from 25 per cent.

In the absence of a strong North American lumber market — which won’t revive without a recovery in U.S. housing starts — coal export volumes destined primarily for Asia are now close to double the size of lumber exports that go mainly to the U.S.

It is a transformation that many governments and businesses are still struggling to grasp, Lindsay said. It has revived the B.C. mining industry, enabling some marginal operators to shed debt.

Others have been able to reopen mines once considered uneconomic, leading to record investment in the development of new mines.

PricewaterhouseCoopers, which does an annual review of the B.C. mining industry, recently estimated that mining accounts for two per cent of the province’s gross domestic product, or GDP.

In 2010, its impact on the economy was worth close to $9 billion and it supported 45,703 jobs, including 8,195 direct employment at operating mines. Tax revenue totalled $938 million, including $449.2 million to Ottawa and $418 million to Victoria, plus $74.6 million in municipal taxes generated through spending.

Coal was responsible for 46 per cent of net revenue within the sector in 2010 and copper 21 per cent.

“A lot of people in quite senior decision-making positions may think that China is 50-per-cent bigger than the U.S. or something like that. They won’t think that they’re five times bigger than the U.S. China in steel [consumption] is eight times the size of the U.S.,” Lindsay said. “So just imagine lining up eight U.S. economies in a row — that’s why that market is so important to commodities, and not just Teck but to anybody that’s involved in the commodity business.”

In March, Lindsay was in Beijing for the annual China Economic Development Forum, an ongoing series of high-level discussions involving global business leaders, academics, economists and Chinese decision makers.

Teck was there because the Chinese government took a 17-per-cent interest in the company when it was hit with a credit freeze during the 2008 global economic meltdown.

“China is a government that has the economic levers and knows how and when to pull them — and can. And they do,” Lindsay said. You have to go there and see their point of view as much as you can, to have any level of confidence that they can carry on what they’re doing.

“If they say they’re going to do something, they will do it.”

Commodities analyst Patricia Mohr, vice-president at Scotiabank Economics, points to China-fuelled copper demand as a key reason for the robust performance of B.C.’s mining sector in recent years after a severe lag in the 1990s and the early part of the last decade.

“Copper last year was in a supply deficit. It is in a supply deficit this year. It’s very difficult to knock copper prices down for more than a couple of months, then it comes back,” Mohr said.

“Typically you do not get a rebound in commodity prices or in base metals until about a year and a half after the end of a U.S. recession. But this time you got a rebound in copper and other base metals when the U.S. was still in a recession and it was because of China.”

Strong copper prices have been good for B.C., Mohr noted. “A lot of rejuvenation in mines in British Columbia has been copper-related.”

Several copper mines — including Huckleberry, Gibraltar and Copper Mountain — that had either struggled or shut down supposedly for good at sub-$1 per pound copper prices are thriving or expanding with prices well above $3.

A new copper-gold mine, Mount Milligan, is in the process of opening.

Even Teck had plans for the closure of Highland Valley, Canada’s largest copper mine. Now, it’s planning to keep the mine open until at least 2025.

Mohr believes the bull run has a few years to go, more than enough time to get more mines open in B.C. The province wants eight new mines open by 2015.

“The low for copper [in the past year] was $3.08 a pound in early October, at the height of all the concern over the eurozone [finance and debt] difficulties. Today it’s more like $3.85, which is extremely lucrative.

“Copper this year is still in a supply-side deficit and I’m expecting quite strong prices for copper, maybe averaging $3.90 [US] a pound. Next year it may be $3.70 to $3.80, and then moving down a bit mid-decade but maybe not as much as people imagine, and the reason for that is that some of the new copper mine expansion will be in central Africa and there are political risks in that area of the world,” Mohr said.

“Also, copper mine development costs have really escalated a lot and so you need higher prices to incent mining companies to put in place new mines.”

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